IN 2005, a blue-ribbon panel convened by the National Academies, called for dramatic efforts to improve science and math education in elementary and secondary schools and increased public investment into basic scientific research. The title of their report, “Rising Above the Gathering Storm,” summed up the panel’s sense that America is headed for trouble, but the challenges were surmountable.
Two months ago, the panel reconvened to issue a follow-up report assessing the progress since 2005. Its conclusion was grim; the nation “has shown little sign of improvement,” the follow-up report declared, adding that “The Gathering Storm increasingly appears to be a Category 5.”
Bad news, especially at a moment when the U.S. is struggling to energize a faltering economy, when the political climate favors cutting back public spending and when many of our global competitors are investing heavily into innovation.
The day after the midterm elections, President Obama suggested where he stands on the issue when he said, “I don’t think we should be cutting back on research and development, because if we can develop new technologies in areas like clean energy, that could make all the difference in terms of job creation here at home.”
But partial Republican control of the legislative process could frustrate his ambitions. As the American Association for the Advancement of Science noted in a policy brief, “The 2010 Republican Agenda, A Pledge to America… [calls for], cutting government spending to pre-stimulus, pre-bailout levels for the FY 2011 budget, [which] would cut the federal R&D investment by $8.1 billion (5.5%) from FY 2010.” And it would place “a hard cap on future growth of the discretionary budget, [which] would make it more difficult for Congress to implement R&D growth initiatives.”
Also, just a few weeks ago, after the midterm elections, Representative Eric Cantor, in line to become majority leader of the House in the next Congress, called for cutting the National Institutes of Health budget by 4.3 percent, or about $1.3 billion. And it’s still not clear whether the America COMPETES Act – a centerpiece authorization measure that would double the budgets over the next decade of the National Science Foundation, Department of Energy science research programs, and the National Institutes of Standards and Technology along with programs to foster science education and innovation – will clear the Senate during the forthcoming the lame-duck session. If not, advocates will have to start from scratch in January when the new Congress convenes.
Robert Atkinson, President of the Information Technology and Innovation Foundation, a think tank that studies innovation policy, is closely watching these and host of other factors that will affect how the U.S. promotes innovation and strengthens our economic competitive posture in the global market. As he explains, positions on both sides of the partisan divide in Washington could inhibit or help innovation promotion. Here are excerpts of my discussion with him a few weeks ago:
Do you agree, first of all, that the U.S. is not keeping its edge as an innovative power throughout the world?
Absolutely. We issued a report last year called “The Atlantic Century: Benchmarking EU and US Innovation and Competitiveness,” where we showed the U.S. ranks 40th out of 40 countries in terms of improvement in international competitiveness and innovation capacity over the last decade. This was based on a set of innovation-based competitiveness metrics within several broad categories: human capital; innovation capacity; entrepreneurship; infrastructure; economic policy; and economic performance. The U.S. is simply falling behind. Other countries have made innovation promotion a high priority, so they’ve restructured their tax code, their regulatory systems, their innovation policy systems.
Are there any leaders in the U.S. who substantially disagree with that conclusion?
The preponderance of opinion is that we are not doing as well as we should be or have been. But there are still pockets of people who see it differently. The Economist magazine keeps touting that we’re number one on the basis of, frankly, misguided measures. There are still people who think the U.S. has always been number one and always will be. It’s almost a religious view for them. Some economists think there’s simply no way for other countries to surpass the U.S. because they are not relying on markets as we do. By this definition, if you don’t rely solely on markets, you can’t advance. So they’re completely unwilling to say some other strategies are working. But I think more and more people are realizing that there is a problem and we need to address it as a nation.
How will the shifting political winds in the U.S. right now help or hurt the situation?
The problem in the U.S. is that you essentially have political parties with a component of the answer but not the whole answer. And so when we switch power from one party to the next it helps some things, it hurts other things. Case in point: There are certain areas where I think the Democrats’ proposals would have hurt innovation, including net neutrality and privacy regulation. For example, if Internet privacy legislation passed, it could end up hurting advertising revenues for the Internet ecosystem. Republicans generally don’t want to regulate as much in some of these areas, and that could benefit innovation. Likewise, I think we’ve got to do better in the area of corporate taxation. Our R&D tax credit is not very good anymore relative to other countries. While the President has come out in favor of boosting the credit somewhat, I think that’s generally an issue that the Republicans are more sympathetic to and more likely to push. Senators Max Baucus and Orrin Hatch have proposed a credit expansion.
On the other hand, this year the House passed the America COMPETES Act, which was to expand science funding. The problem is that a lot of Republicans decided for some reason they would draw a line in the sand on this bill in order to cut government spending. To be sure, some Republicans supported the bill but many others opposed it. Additionally, Representative Cantor said last week that he envisions cutting the NIH budget by 4.3 percent, or about $1.3 billion. There are other Republicans on the Hill who are actually talking about cutting the National Science Foundation budget.
So the problem is that you’ve got one party that’s willing to do something on the tax and regulatory side and the other party that’s willing to do something on the public investments side. But the challenge is so severe in the U.S. right now that you really have to be firing on all cylinders, and you can’t just be doing a couple of them.
So we need a more coherent and balanced strategy to move forward.
Exactly. The other problem we have is that, broadly, the Republicans are focusing on individual tax rates, and the Democrats on social spending. These are obviously generalizations. But the reality is neither one of these strategies does very much to drive economic growth. Despite what Republicans say, we would be much better off letting the Bush tax cuts on the rich expire and using that savings to lower corporate tax rates by expanding the R&D credit and allowing first-year expensing of investments in new equipment. The action isn’t on individual tax rates. If you’re going from 39 percent to 35, it doesn’t matter in any serious way. If you use that money to drive corporate tax incentives and reductions, that’s going to get you some impact. I worry that neither side is really focusing on this with a laser-like, pragmatic approach that recognizes that we’re behind other nations.
Look at what some of other countries are doing. Take, for example, a country like the Netherlands that has put in place a law that taxes income corporations receive from patents at five percent. The comparable tax in the U.S. is 35 percent. That’s pretty radical when you think about that. Some other countries in Europe are taxing corporate income from any research and taxed at five percent or less. On top of that, they’re funding all sorts of science and technology programs, so it’s not just one or the other.
If you look at, for example, at our research and development tax credit, it’s seventeenth in the 30 OECD nations right now. The French credit is four and a half times larger than ours; Canada’s is about three times larger than ours. But again, none of these countries are saying that the strategy to success is just to do better with corporate tax incentives and make sure we don’t have onerous regulations. They’re doing that, but they’re also recognizing that they need more public investment and science education and national science agencies, broadband rollout and a host of other things. So they’re able to combine one from column A and one from column B, if you will. Our political system seems incapable of doing that.
Do you think this will change much in the near future?
I do. I actually have some hope. I think it’s certainly possible that the Republicans will decide they don’t want to just be a party of opposition and will be a party of doing something somewhat proactive. And then they’re going to have to be forced to work with the administration and vice versa. That’s where you could get some compromises, if you will, that bring in both conservative and liberal components of an innovation strategy. We’re also seeing more and more from the corporate community and perhaps even from the labor community the expectation of working together. I was at a labor management meeting this week where they were talking about how to create more innovation in the life sciences industry. This group is called PILMA: the Pharmaceutical Industry Labor Management Association. They’ve got a new policy agenda which is really interesting, really good. So I think there are some new opportunities like that where labor and business get together and start to drive a real national competitiveness and innovation agenda.
To what extent do you think that there’s an understanding among the broader American public about the need for these sorts of investments into research and innovation, and that those sorts of investments will help to strengthen our economy?
I don’t think most people understand all that much, but it’s a relatively technical set of issues. I believe when you look at polling and the like, they’re quite supportive of the government helping with innovation generally; if you lay that out as an option, they say, ‘We support this.’ But I think what it’s going to take is real leadership on the part of the political class is to say that this is something critical for the country to do, and we’ve got to step up to the plate and even sacrifice a little bit to make that happen.